March 11, 2009 - Convenience Store / Petroleum (CSP) Special Report: this is the third of a four-part CSP Daily News series on how the industry is reacting to the federal excise tax on tobacco that begins in April.

Effective April 1, the federal excise tax (FET) increase kicks in on virtually all tobacco segments to finance expansion of the State Children's Health Insurance Program (SCHIP). Among the increases: a pack of cigarettes jumps from 39 cents to more than $1, a pack of little cigars soars from 4 cents to more than $1; and in the biggest hit, the levy on roll-your-own tobacco skyrockets from $1 a pound to nearly $25. History of Federal Tax Rate Hikes on Cigarettes..

What is generating far less attention is that nearly half the states in the country have passed or are contemplating raising their state excise tax on tobacco to finance budget shortfalls that are running in the hundreds of millions-and even billions-of dollars.Robert Sears, director of trade relations at Philip Morris USA, "If you're a local retailer, you have to be worried about your state," said "You're seeing the potential of a state tax on top of a federal tax."

Indeed, the economic slump, compounded by the federal tobacco increase, is raising tobacco prices by unprecedented amounts that exceed the Master Settlement Agreement a decade ago. Some states could see the price of cigarettes climb by as much as $2 a pack.

Danny Blackburn, vice president of Marsh Petroleum, operator of Greeneville, Tenn.-based Kwik Shop expects a significant backlash from the SCHIP tax hike. "We could see as much as a 15% decrease in sales," he said. "Once everything levels out, we may get some of that back over time. There is no question about it that the cigarette category will feel the biggest impact. If by chance anyone is considering a roll-your-own program, you can forget that idea."